Friday, December 3, 2010

Why is gas at $1.10 a litre?


November 17, 2010 By Bryan Borzykowski

Gas prices in Toronto may have jumped 4.4 cents yesterday to $1.08 a litre, but in Peterborough the cost stayed at just 98.9 cents a litre.

What's going on, readers wonder? How can it cost a dime less a litre in more rural areas with presumably less competition?

Jason Parent, a senior associate with MJ Ervin & Associates, a London, Ont.-based petroleumm consulting firm, says it boils down to local price wars and stations and stores wanting to get people to buy goods rather than gas.

Parent lives in London where gas is about four cents higher than in nearby St. Thomas.

“The town just got a big box store so they’re selling gas with minimal margin to try and bring people to the store,” he says. “Local stations have to compete with that.”

Scott Maxwell, manager of website TomorrowsGasPricesToday.com, adds that areas outside of Toronto have more independents trying to grab market share from each other. These stations need to sell in-store wares to make money.

Another reason why prices are higher in Toronto is that we don’t get a lot of choice. Drive around the city and you’ll see big names such as Petro-Canada, Shell and Esso. Maxwell says the more popular brands have wiped out the independents who are usually freer to charge what they want.

Maxwell adds that Toronto drivers aren't likely to travel far to find the best price.

“If the big stations put stores everywhere and know they can charge more to make more, what’s forcing them to drop prices if they all do this?” he asks.

The oil companies companies argue that the price of fuel is set independently and based on a number of factors including the oil, refining and marketing costs and supply and demand in the particular market.

So why did Toronto’s gas prices increase so much yesterday?

“When you’ve got a majority of people located in one area we see lock-step pricing, gas companies take advantage of it,” Maxwell says.

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